Quarterly Conference Call

Transcription

1 Morgan Stanley Quarterly Conference Call October 25 th, 2017 The Citrus Group at Morgan Stanley

2 Introduction Overview 3 rd Quarter Recap - Fixed Income - Equities Outlook - Analysis Conclusion Looking Forward 1

3 The Citrus Group at Morgan Stanley From L to R: Bob Brett, Herb Means, Maria Mahoney, Anne Marie Williams, Mark Gibson, Dan Murphy, Steve Clapp, Gaury Hernandez & Sam Staab 2

4 Where We Were The Federal Reserve Raised Rates The Fed raised the overnight borrowing rate 4 times from December 2015 June Morgan Stanley Wealth Management 10/14/2017 from our August 31 st, 2017 Monthly Newsletter Last month in our July newsletter we referenced Alan Greenspan, the former chairman of the Federal Reserve, about why investors who are concerned about a stock market should instead be worried about bonds. The real problem is that when the bond-market bubble collapses, long-term rates will rise. Moreover, on 9/2/2017, the Barron s cover had the following caption; After an eight-year climb, stocks are pricey, rates are rising, and the world is in turmoil. Our guide to spotting the turn. Is this fake news? In our opinion, it is at least very misleading.

5 Trends for Interest Rates -Morgan Stanley Wealth Management 9/30/2017 from the September 30 th,2017 Monthly Newsletter Overall, we maintain the primary trend for the 10yr US treasury yields remains in place for lower rates. As the yield curve has flattened (shorter-term rates have risen faster relative to longer-term rates) this year, causing investors to continue reaching for yield and income. This quest for income has caused investors to increase exposure to: duration risk (how sensitive a bond is to an increase in rates) and/or credit risk (the risk of the creditor defaulting). We believe in positioning our portfolios to acknowledge this risk but stand ready to react appropriately if we see more evidence in the marketplace. 4

6 Where We Were To best recap 2017, we need to go back further back than our last conference call in July... Our indicators are presently giving us a more optimistic outlook for equities than we have had since mid This November, increased volume and investor confidence rewarded equity investors. This move was substantial enough for us to confirm our intermediate (3-6 months) outlook was turning positive. Market rotation, improved breadth from mid and small-caps, and a confirmation from the Transportation Index quickly caused more follow-through as the primary trend was confirmed higher also. Quantifying market activity allows measurement and comparison. Animal spirits, human behavior, and black swans are difficult (if not impossible) to predict. Our analysis should never predict a bottom, but should identify a trend. This is where we believe we are... We are happy to be currently aligned with the consensus of most fundamental analysts... Risk management in place, we hope this may be the start (or continuation) of the next big thing. 5

7 3 rd Quarter for Equities More Long-Term Confirmation of the Trend Comparing DJ TRANSPORTS to DJ INDUSTRIALS our analysis confirms a positive trend using Dow Theory. 1/1/ /10/2017 Thompson Reuters Comparing the strength in Small-Cap (S&P 600) and Large Caps (S&P 500) helps to confirm the bullish primary trend for equities. 1/1/ /10/2017 Thompson Reuters 6

8 Analysis of Markets & Sectors The Citrus Group Scoring System Capitalization & Style Score Russell 2000 Growth Index( RUO Index ) 4 Russell Midcap Growth Index( RDG Index ) 4 Russell 1000 Growth Index( RLG Index ) 4 Russell 2000 Value Index( RUJ Index ) 2 Russell 1000 Value Index( RLV Index ) 2 Russell Midcap Value Index( RMV Index ) 0 GICS Sectors Score S&P SPCM 1500 FIN INDEX( S15FINL ) 5 S&P SPCM 1500 MATRLS IDX( S15MATR ) 4 S&P SPCM 1500 UTIL INDEX( S15UTIL ) 4 S&P SPCM 1500 HTH CR IDX( S15HLTH ) 4 S&P SPCM 1500 INF TC IDX( S15INFT ) 3 S&P SPCM 1500 ENERGY IDX( S15ENRS ) 3 S&P SPCM 1500 TEL SR IDX( S15TELS ) 3 S&P SPCM 1500 Real Est( S15RLST ) 3 S&P SPCM 1500 INDSTR IDX( S15INDU ) 0 S&P SPCM 1500 CN DIS IDX( S15COND ) 0 S&P SPCM 1500 CN STP IDX( S15CONS ) 0 GICS Industry Group Score S&P SPRCM PHRM BIO & LS( S15PHRM ) 6 S&P SPRCM DIV FINLS INDX( S15DIVF ) 6 S&P SPRCM TECH HW&EQP IX( S15TECH ) 5 S&P SPRCM MATERIALS INDX( S15MATRX ) 4 S&P SPRCM SEMI&SEMI EQP( S15SSEQX ) 4 S&P SPRCM SOFTW & SVC IX( S15SFTW ) 4 S&P SPRCM UTILITIES INDX( S15UTILX ) 4 S&P SPRCM AUTO & COM IDX( S15AUCO ) 4 S&P SPRCM HC EQPM&SVC IX( S15HCES ) 3 S&P SPRCM INSURANCE INDX( S15INSU ) 3 S&P SPRCM REAL ESTATE IX( S15REAL ) 3 S&P SPRCM TELECOM SVC IX( S15TELSX ) 3 S&P SPRCM HH&PNSL PDT IX( S15HOUS ) 3 S&P SPRCM ENERGY INDEX( S15ENRSX ) 3 S&P SPRCM FD&STPL RET IX( S15FDSR ) 2 S&P SPRCM BANKS INDEX( S15BANXX ) 2 S&P 1500 CONS SRV IDX( S15HOTR ) 2 S&P SPRCM CAPITAL GDS IX( S15CPGS ) 2 S&P SPRCM CON DUR&APP IX( S15CODU ) 1 S&P SPRCM Comm & Prof Sv( S15COMS ) 1 S&P SPRCM MEDIA INDEX( S15MEDA ) 0 S&P SPRCM FD BVG&TOB IDX( S15FDBT ) 0 S&P SPRCM TRANSPTN INDEX( S15TRAN ) 0 S&P SPRCM RETAILING INDX( S15RETL ) 0 7

9 Conclusions Equities: Primary & Intermediate Trend BULLISH Favor Small & Mid-Caps over Large Caps Favor US over International Favor Growth over Value Leading Sector is Healthcare and Industrials Fixed Income: Primary & Intermediate Trend BULLISH Prices (Lower Rates) Favor Quality as spreads are tight We have reduced duration, but not eliminated it Continue to favor liquidity Cash Underweight Commodities: No Longer Opportunistic 8

10 Looking Forward Geopolitical Gridlock? Seasonality Quarterly Earnings Interest Rates 9

11 This material is intended only for clients and prospective clients of Portfolio Management program. It has been prepared solely for information purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument, or to participate in any trading strategy. The S&P 500 Index is unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market. An investment cannot be made directly in a market index. The S&P Small Cap 600 measures the small-cap segment of the U.S. equity market. The index is designed to track companies that meet specific inclusion criteria to ensure that they are liquid and financially viable. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000 is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually. The Dow Jones Industrial Average is a price weighted index of 30 blue-chip stocks and serves as a measure of the US Market, covering such diverse industries as financial services, technology retail, entertainment and consumer goods. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. As of May 30 th 2011, the MSCI World Index consists of the following 24 developed country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. Technical analysis is the study of past price and volume trends of a security in an attempt to predict the security's future price and volume trends. Its limitations include but are not limited to: the lack of fundamental analysis of a security's financial condition, lack of analysis of macro economic trend forecasts, the bias of the technician's view and the possibility that past participants were not entirely rational in their past purchases or sales of the security being analyzed. Investors using technical analysis should consider these limitations prior to making an investment decision. The individuals mentioned as the Portfolio Management Team are Financial Advisors with Morgan Stanley participating in the Morgan Stanley Portfolio Management Program. The Portfolio Management program is an investment advisory program in which the client s Financial Advisor invests the client s assets on a discretionary basis in a range of securities. The Portfolio Management program is described in the applicable Morgan Stanley ADV Part 2, available at or from your Financial Advisor. Past performance of any security is not a guarantee of future performance. There is no guarantee that this investment strategy will work under all market conditions. 10

12 201 E. Pine Street 11 th Floor, Orlando, FL Main Toll Free Fax Robert Brett, Financial Advisor Stephen Clapp, Financial Advisor Daniel Murphy, Financial Advisor Morgan Stanley Smith Barney LLC, member SIPC.